Internet To Change Borrowing Behaviour

Consumers are not shopping around for the best deal when arranging personal finance a survey revealed today, but this looks set to change as the Internet makes borrowers sharpen up when looking for a personal loan.

A survey of consumer borrowing habits, commissioned by the UK's largest developer of lending software, PanCredit, and undertaken by MORI Financial Services, showed that the number of borrowers with access to the Internet who will shop around on the web for their next personal loan will more than double, (81 percent), compared to those borrowers who shopped around previously when arranging personal finance (37 percent).

More importantly, more than half of the Internet users (52 percent) are likely to follow through their enquiry and transact, forecasting an increasing change in the UK personal finance market and increased demand for e-commerce requirements.

Said Richard Carter, managing director of Leeds-based PanCredit: "As consumers embrace the Internet, lenders must not be complacent and change the way personal finance is offered in order to remain successful and maximise opportunities with existing and new customers".

Arranging loans the traditional way

Currently, 61 percent of borrowers admitted to taking the first quote they were given when arranging a recent unsecured loan, hire purchase agreement or car-finance agreement.

Price is not the main concern for these would-be borrowers: only 25 percent chose their lender because of price and 46 percent said they didn't know what a competitive interest rate would be indicating that borrowers make their decisions based on other criteria.

These criteria are brand values and loyalty: 62 percent only borrow from reputable names or a lender used in the past and 36 percent base their choice on whether they have an account with them or have used them before.

Said Carter: "Currently consumers are loyal and naive about financial issues but this looks set to change as more and more they start to embrace the Internet and become financially aware".

"The findings point towards a distinct difference in the behaviour of Internet users and non-users when arranging personal finance and as the Internet users look set to become the norm, massive changes are inevitable".

Arranging loans using the Internet

81 percent of borrowers expect the Internet to make shopping around for loans much easier and 73 percent of borrowers with access to the Internet intend to use it to source more loan quotes than they would if using traditional methods (a massive shift in behaviour considering only 37 percent sourced alternative quotes when arranging their previous personal finance).

When deciding on a loan provider, Internet users are less loyal to lenders and more price sensitive than non-users. Only 13 percent of Internet users would stick with a lender because they have used them before, as opposed to 27 percent of non-users. In fact, 40 percent of Internet users will happily use any lender, as long as the price is right!

Similarly, when asked about transacting on the Internet, 64 percent of Internet users who are likely to use the Internet to browse for loan quotes are also likely to follow through and transact. The majority (64 percent) are indifferent to the type of lender they use and, in the main, will make their decisions on price.

Said Carter: "With half the non-Internet users having access to the Internet within the next 12 months, more and more consumers will be using it as a source of information and, as a result becoming much more sophisticated and demanding when sourcing personal finance quotes".

"This means, as with the current Internet users, price will be an issue and lenders will need to take a much more tailored approach to their customers in order to offer the best deal possible and be competitive within the marketplace".

Concludes Carter: "The financial services market is set to be turned on its head. Our traditionally unsophisticated market will start to source more quotes (using the Internet), become more financially aware as a result and make more decisions based on price and value for money".

"However, brand and service will still be as important, if not more, as competition grows. Lenders will need to make consumers aware of their service and act to build up a relationship with them by tailoring packages or deals to the individual's expectations and needs".

Technical details

The base sample was 300 consumers, 150 Internet users and 150 non-Internet users, interviews were conducted between 25-27 February 2000. All respondents were in the process of repaying a personal loan, HP agreement or car finance agreement or had done so in the last 12 months. Of the Internet-users, 93 percent used it more than once a week.